Against the Grain: How to Succeed in Business by Peddling Heresy

The unique story of a business heretic and his concept of
Economic Value Added (EVA)

In Against the Grain, Joel Stern shares for the
first time, not only the story of how EVA swept the corporate
world, but the story behind the story-the intellectual
underpinnings of EVA, how he and his colleagues at Stern Stewart
& Co. promoted the concept, won its initial acceptance by major
corporations, and later turned the concept into a revolution. He
has for good reason been called a one-man catalyst for change. In
an engaging memoir, he has given us not only an account of his
business strategy, but also provided fascinating anecdotes and
vignettes of encounters with leading businessmen on four
continents.

Joel M. Stern (New York, NY) has been the Managing
Partner of Stern Stewart & Co. since its founding in 1982 and
was coauthor of The EVA Challenge (Wiley: 0-471-40555-8). A
recognized authority on financial economics, corporate performance
measurement, corporate valuation, and incentive compensation, he is
a leading advocate of the concept of shareholder value.Irwin Ross (New York, NY) was retained to write The EVA
Challenge with Joel Stern and John Shiely. He is a former roving
editor of Reader's Digest and over the years has written for
Fortune and a variety of other magazines.

JOEL M. STERN has been the managing partner of Stern Stewart
& Co. since its founding in 1982 and was coauthor of The EVA
Challenge: Implementing Value-Added Change in an Organization
(Wiley). He currently serves on the faculties of five graduate
business schools. A widely published writer, Mr. Stern has been a
financial policy columnist for the Financial Times and the Sunday
Times of London. A recognized authority on financial economics,
corporate performance measurement, corporate valuation, and
incentive compensation, he is a leading advocate of the concept of
shareholder value.

IRWIN ROSS was retained to assist in the writing of The
EVA Challenge with Joel Stern and John Shiely. In addition to this
widely popular treatise, he has written several other books, among
them The Loneliest Campaign: The Truman Victory of 1948, The Image
Merchants, and Shady Business: Confronting Corporate Corruption. He
is a former roving editor of Reader’s Digest and over the
years has written for a variety of other magazines, including
Fortune and Harper’s, as well as Stern Stewart’s
EVAngelist.

It seems like an easy option to read a business autobiography
rather than a self-improving book on the workings of companies or
markets.
The attraction is that it may be a more palatable way to pick up
business tips, and has lengthy theories presented in potted
form.
Both are true of Joel Stern's memoir, Against the Grain: How to
succeed in business by peddling heresy. The emphasis here is on
peddling, and he is proud of it. "I dash about to sell ideas," he
writes in a section on "serious" jet-setting. Not long before his
61st birthday he visited 12 cities, "some more than once", on four
continents in 27 days.
Of course, the book also sells Stern Stewart & Co, the
financial consulting firm he founded in 1982, which has developed
and popularized the concept of EVA - economic value added - "the
profit that results after deducting the cost of all capital
invested in the firm".
Such peddling of his firm is sometimes irksome, but Stern Stewart's
theories on how to measure profit and wealth created for
shareholders remain a healthy antidote to earnings per share.
Simila rly, Stern's skepticism about share options as a form of
remuneration rings true - as well as providing the backdrop for his
sales pitch on EVA-related incentives.
But the main interest of Stern himself lies in his unusual
combination of academic, entrepreneur and salesman. Teaching has
always been an important part of his career and, even if you
disagree with him, he makes you think.
The academic side blossomed at the University of Chicago graduate
business school. He was drawn there by Milton Friedman's book
Capitalism and Freedom, which prompted a Damascene conversion to
free markets. There he lived through a revolution in financial
theory led by the likes of Merton Miller, Nobel Prize winning
economist.
Aware of his lack of economics training, he kept piping up with
questions. Finally Miller snapped and suggested he visit the dean's
office: "There will be a derringer in the file for you. Please keep
pulling the trigger until something exciting happens."
Stern stuck at the financial theory. And he did so on limited
means, which prompted his first entrepreneurial burst. As an
orthodox Jew, he could not eat in the student mess. His
self-catering demanded a fridge, which he bought for Dollars 38 and
then rented out to fellow students at Dollars 12 per half shelf per
quarter, grossing Dollars 432 a year. "With that towering return on
investment, I was convinced that the free enterprise system worked
just fine."
He started work at Chase Manhattan Bank and joined the corporate
financial research team, where he developed his disdain for
conventional accounting and worked on free cash flow analysis. He
railed against such gimmicks as "smoothing out" earnings, arguing
that it was not so easy to fool the market.
When set loose on clients, he insisted a fee was charged for the
analytical service. Giving it away would devalue it - a view that
equity researchers in the 1990s would have done better to abide
by.
Stern broke away, with some colleagues and backing from a client.
Ron Palamara, of Anacomp, asked what the new business was worth.
"Dollars 10m," Stern replied - it sounded like a "nice round
number". Palamara bought a 50 per cent stake.
Bennett Stewart, another graduate of the University of Chicago, is
the firm's other leading light. Stern had recruited him to the
Chase team via an interview that involved debating financial theory
in a car wash.
Stern's autobiography is short, with the story of the man and the
firm taking up a mere 142 pages. The personal side includes his
religious devotion and love affairs with South Africa, libertarian
politics and a woman he bumped into on a flight to Phoenix. These
leaven the mix, although the reader will occasionally ask himself
how much he cares.
The final two sections of the book include a question and answer
session on such topics as corporate greed and business ethics, and
a selection of articles comprising useful short lectures on
corporate finance and efficient market theory.
Stern describes himself as a missionary. The term is apt because he
realizes that good ideas are worth nothing if they are not
published and pushed. Like this zealous role model, he can be
irritating - but he is, above all, stimulating. (Financial
Times, November 13, 2003)

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